Sunday, May 3, 2009

STI: Er, what is a bear market rally?

May 3, 2009


Er, what is a bear market rally?


Where do you see this?


In newspaper articles and stock market analyst reports.


What does it mean?


A bear market rally is a temporary increase in stock prices during a period when prices are generally plunging over months or years.


This rise usually ranges from 10 per cent to 20 per cent, and even as high as 30 per cent, from the lowest point. Trading volumes also surge.


However, market fundamentals remain weak and do not offer a clue as to why the markets are going up.


Overall investor sentiment would still be negative and cautious.


Why is it important?


This term has been used commonly in recent weeks, as stock markets have seen a substantial rally since early March.


For instance, the Straits Times Index has charged up more than 30 per cent to 1,920 on Thursday, after plunging to a six-year low of 1,456 on March 9.


In the United States, the Dow Jones Industrial Average saw a six-week rebound - its best streak since 1938.


A bear market rally favours nimble traders, who are quick to buy but also swift to take profit.


So you want to use the term? Just say...


'Be wary of investing in equities despite the recent rebound. Experts have warned that this is a bear market rally as the world economy has not yet seen a turnaround.'


Alvin Foo

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